Bank of America expects that a further rise in bond yields will not derail the stock market rally because stocks are still undervalued considering inflation, while bonds remain relatively expensive.

JULY 25 - After a sharp run-up, the S&P 500 index has been range-bound of late, trading within a few percent of the 1000 level. In the wake of the index's rise of more than 20% from the March lows, a consolidation of recent gains seems justifiable.

Recently, we had been wondering what it might take to break the reverie in the bond market....